Home Value Investing Graham & Doddsville Winter Issue: Interview with Lee Ainslie

Graham & Doddsville Winter Issue: Interview with Lee Ainslie

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Lee Ainslie III is the head of Maverick Capital, which he formed in 1993. Prior to founding Maverick, he worked at Julian
Robertson’s Tiger Management. He holds a bachelor’s degree from the University of Virginia and an MBA from the University of North Carolina’s Kenan-Flagler Business School.


each other and compared to each other and what have you taken away from each of them?


KSS: Building a firm is a combination of timing, skill and luck, and what I have learned is that it’s a different thing from just being a good investor. Something I appreciate more now than I did 10-15 years ago is how important communication is with your partners, your investors, and all of your stakeholders.


The second thing I would say is that it is a much different environment today than it was 15 years ago. The industry has changed quite a bit in terms of the investor base. It used to be a business of mostly individual investors, and now it is a business of mostly institutional investors. So if you want to build a business today, it’s more challenging unless you come from a brand-name firm or you start at a certain size. Being small is great for investing but a challenge for building the business.

In our case, we have $ 80 million in assets under management. We had $400 million before the credit crisis and we made the decision during the crisis to give cash back to our clients who were under extreme distress, even though we had some capital locked up. I made the decision that I didn’t want people to experience extreme financial stress

while I was holding onto their capital. I made what I thought was the right ethical decision, although it did hurt our business, to open up the fund and, basically, release the capital. We became a funding source at a time when many hedge funds were gating their

“Be explicit about learning and progressing. Constantly trying to improve and designing systems for yourself to accomplish goals yields significant rewards over time.”


capital. The benefit of making that decision is we had a lot of grateful clients, although we didn’t have their assets.


We had to rebuild the firm after that happened. One of the ways I did it was by putting a lot of thought into trying to get more stable, long-term capital, perhaps, in a different structure than a hedge fund, or in addition to one. This led me to get interested in buying a business. So I, along with some of our former investors, bought a reinsurance company, and that reinsurance company, Spencer Capital Holdings, is a client of our investment management firm.


G&D: The reinsurance business seems like a great source of long-term capital, but if you underwrite poorly you can certainly lose money. How do you think about running and managing that business and acquiring the right talent for it?


KSS: It is important to understand that our reinsurance company is a frequency business, not a severity one. A frequency business underwrites generally predictable losses and a severity business underwrites risks that don’t happen often or predictably, but when they do occur, they are usually severe and expensive. We can still lose money, but it’s less often and less extreme than with a severity business.


Given the nature of our losses, we have the latitude to invest much of the float in equities, which helps our returns most of the time. It also makes us an attractive employer for someone interested in investing because we have a lot of flexibility in how we deploy capital.


G&D: Did you decide to go into reinsurance because of

Graham & Doddsville – Issue 20 – Winter 2014 full issue (source here)

Graham & Doddsville – Issue 20 – Winter 2014

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